Posts Tagged 'Markets'

Dr. R.K. Pachauri is the Chairman of the Intergovernmental Panel on Climate Change (IPCC), and Director-General of The Energy and Resources Institute (TERI). The IPCC, under the stewardship of Dr. Pachauri, received the Nobel Peace Prize for the year 2007, along with Al Gore.

Dr. Pachauri answered a few questions on Climate Change for Liberal Voice.

Q. Though the scientific world continues to remain polarised on the anthropogenic contribution to Climate Change, there does seem to be a broader recognition of the Global Warming trend. What is your take on this debate?

A. The Fourth Assessment Report of the IPCC has provided substantial new evidence on the nature and causes of climate change. The reason why there is growing concern not only in the scientific community but among policymakers as well on the anthropogenic contribution to climate change is because this is an issue on which we can take action. We naturally cannot do anything about natural factors that contribute to climate change. And given the fact that in a relatively short period of time i.e. since industrialization, we have caused a serious imbalance in the climate system, it is essential for us to accept responsibility for mitigation of greenhouse gas emissions and stabilize the earth’s climate.

Q. Does there really exist a first-best (in the sense of Pareto optimality) solution to the problem? What is the short- and long-term trade-off between the attempt to check Climate Change and economic growth?

A. We have clearly brought out the fact that all the technologies that are required for initiating a programme of stringent mitigation of greenhouse gas emissions are either available or due to be commercialized soon. We have also shown that the cost of stringent mitigation would amount to less than 3 percent of global GDP in 2030. This, of course, does not take into account several co-benefits from mitigation which could actually convert this cost of less than 3 percent into a negative cost. In that sense there are several Pareto optimal solutions that are available to us, but never get translated into action in the market place because of pricing distortions or the exclusion of externalities in our calculations. In my view, both in the short and long term, there is no trade off between mitigating climate change and economic growth. This is particularly so if we take into account intergenerational dimensions of optimality.

Q. Do you believe a decentralised (country-specific) or a centralised solution (global level) would be better for the task at hand?

A. Essentially it is country specific solutions that would be most desirable, simply because conditions differ from one country to other, and therefore, so would factor costs. Variations would also exist in the comparative advantage of each country associated with specific projects. However, there should be options for trading across countries in arriving at projects that would contribute to a global reduction in emissions. This, of course, presupposes that there would be some regulation at the global level that would place limits on emissions for each country to make trading in solutions possible in an efficient and cost effective way.

Q. What are the major pros and cons in favour and against the two major market creating policies (for carbon) that are on the table at the moment, viz. cap-and-trade and carbon tax. Does either of them gain your personal approval?

A. Both solutions, namely cap-and-trade and carbon taxes, have their merits, but what is essential is to see that any scheme for either approach is preceded by adequate analysis to ensure optimality. There are also administrative complexities that need to be taken into account before implementing either scheme, but the world now has enough experience in both, that could help in design of a system in any country. I am personally in favour of using both methods, and it is really up to a society to decide which one it prefers. I do not see inherent weaknesses, but there could be major deficiencies or distortions in the way either programme is implemented.

Q. The viewpoint that USA and China must take up their fair share of the remedial process has been put forward time and time again. Is there no way forward without the cooperation of both these countries?

A. I think we should not forget the principle of common but differentiated responsibility that is part of the Framework Convention on Climate Change. The problem of climate change has been caused by a stock of greenhouse gases in the atmosphere and not by current flows. In that sense the first move has to be made by the developed countries. That indeed is the equitable and fair approach to dealing with the problem. Developing countries can implement certain measures, but this should happen with the provision of resources to take care of incremental costs and access to technologies which at the margin would cost more than conventional technologies. These available technologies which may be more polluting at the global level, but in terms of private cost are much cheaper. I believe the only way forward to get the cooperation of the developing countries is for the US to lead and make up for the time that has been lost since 1992 when the UNFCCC came into existence.

Q. Among the possible solutions, the CCS (Carbon Capture and Sequestration) has been eagerly awaited, and currently a pilot project is being run in Germany to estimate the viability of the technology.

A. The IPCC has prepared a special report on carbon capture and storage which provides an assessment of the potential of CCS technology and the need for much greater research and development and project implementation experience before this approach becomes economically viable. I believe we are not at a stage where CCS can provide a credible and large scale option for mitigation.

Q. With the global financial crisis on the front burner for most economies, would you say that the endeavour against climate change is not receiving adequate attention?

A. Indeed the global financial crisis is a serious distraction for policymakers who would like to take action in the field of climate change. However, I think we would see solutions for the economic crisis that also simultaneously deal with mitigation such as President-elect Obama’s plan for generating green jobs and ensuring a green recovery of the economy. Thinkers and policymakers are very soon going to move away from fire fighting solutions to basic changes that would address systemic problems inherent in the pattern of economic growth pursued in the past. As a result of such an effort we are bound to see climate change being dealt with as a part of the package to address the current economic crisis.

Q. Would you view the financial crisis as an opportunity to get the ball rolling quicker in terms of heavy investment in Climate Change technologies to in turn have the Keynesian macroeconomic benefits that are much needed at this stage?

A. My conviction is that the financial crisis is indeed an opportunity for ensuring large scale investments in greener infrastructure, greener technologies and greener products and processes by which we would not only produce large macroeconomic benefits but also deal effectively with the problem of climate change. I believe a great deal of this can be done with very low or even negative costs.